Why Loan Against Mutual Funds is Better Than Personal Loans

When faced with urgent financial needs—whether it is medical expenses, education fees, travel plans, or business requirements—most people think of personal loans as the go-to solution. Banks and financial institutions aggressively market personal loans as a quick and convenient way to get funds. However, what many investors overlook is that if you already have mutual fund investments, you can unlock liquidity without disturbing your portfolio through a Loan Against Mutual Funds (LAMF).

In simple words, a Loan Against Mutual Funds allows you to pledge your existing holdings and borrow money against them. Unlike personal loans, you don’t need to liquidate your investments, and you can still enjoy the benefits of compounding returns. Let us explore why this option is not only smarter but also more cost-effective compared to traditional personal loans.

1. Lower Interest Rates

One of the biggest disadvantages of personal loans is the high interest rate, often ranging from 12% to 24% annually depending on your credit profile. On the other hand, Loan Against Mutual Funds typically comes with much lower interest rates, often in the range of 8% to 11%. Since your loan is backed by your mutual fund units as collateral, the risk for the lender is lower, which translates into better terms for you.

2. No Need to Break Investments

Personal loans might give you immediate cash, but if you fund your needs by redeeming mutual funds, you lose the growth potential of those investments. By taking a loan against your mutual funds, you retain ownership of your units. The investment continues to generate returns, ensuring your long-term goals are not compromised.

3. Quick Digital Process

Applying for a personal loan often requires extensive paperwork, income proofs, and credit checks. In comparison, taking a Loan Against Mutual Funds is a seamless and paperless process. Many fintech platforms allow you to check your eligibility and get approval within minutes. The funds are disbursed directly into your bank account, making it a hassle-free solution in emergencies.

4. Flexible Borrowing & Repayment

Unlike personal loans where you must borrow a fixed lump sum and repay in EMIs, a Loan Against Mutual Funds works like an overdraft facility. You are sanctioned a credit limit based on the value of your pledged funds, but you only pay interest on the amount you actually use. This flexibility makes it a smarter financial tool compared to rigid personal loan structures.

5. No Impact on Credit Score

Personal loans directly affect your credit score since they are unsecured borrowings. Any delay in repayment can lower your CIBIL score. With a Loan Against Mutual Funds, however, the loan is secured against your holdings, and lenders are more comfortable extending credit. As long as your pledged portfolio maintains its value, your credit profile remains stronger.

6. Transparent and Secure

Another reason why a Loan Against Mutual Funds is preferable is the transparency of the arrangement. You can track your pledged holdings, outstanding balance, and available credit limit online. Your units remain in your name, simply marked as pledged. Once you repay, they are unpledged, and you regain complete control.

When Should You Choose Loan Against Mutual Funds?

If you need short-term liquidity for medical needs, children’s education, wedding expenses, or even business opportunities, opting for a Loan Against Mutual Funds is a far superior choice compared to personal loans. It gives you quick access to money, as top rated Mutual Funds are eligible for approx 60% LTV, ensures your investments keep growing, and comes at a much lower cost.

On the other hand, if you do not have mutual fund holdings or need long-term structured debt, a personal loan may still be relevant. But for investors, LAMF is undoubtedly the smarter and financially prudent solution.

Final Thoughts

A Loan Against Mutual Funds combines the best of both worlds—instant liquidity and continued investment growth. While personal loans may appear attractive on the surface, the high interest burden and repayment stress often outweigh the benefits. With LAMF, you can borrow smartly, pay less, and keep your financial goals on track.

👉 Want to explore this option? Check your eligibility for Loan Against Mutual Funds here.